Why competing on price shows a lack of imagination and interest in customers


I know, I know the title is a little contentious and there will no doubt be loads of people dying to tell me about all the successful examples of businesses selling at cheap prices. What’s got me going on this?

I had a meeting last week with someone who is starting a business and wanted to some marketing advice. I asked him what he thought his source of competitive advantage was and he said I am “I intend to be the cheapest”. When I asked him whether he had any other sources of advantage he drew a blank. It was the same when I asked him what he knew about his potential customers and what causes them pain. And there in lies the problem.

It is too simple and requires no imagination to think that customers are only interested in the price and the cheaper the better. We all like a good bargain but we also recognise that if something looks and sounds too good to be true it probably is and won’t last the duration.

We all know about low cost supermarkets like Aldi and Lidl and how successful they have become. The reason they can offer cheaper prices is because their cost model is different to the larger supermarkets. They generally have smaller stores, stock fewer products and have less staff. Customers are also expected to do more of the work themselves, like packing their shopping after they have bought it, away from the tills. They have also cleverly introduced their offers of the week which not only entices us into the stores on a regular basis, but make us spend more money, often on things like tea cosies and mats with cats on that we don’t really need!

If you have a cost advantage over your competitors then selling on price may make sense. However, for the majority of businesses this is not the case and competing on price ends up being a race to the bottom as there is always someone out there prepared to sell it for less. It also shows a lack of interest in what might really be important to customers.

What makes businesses far more sustainable and successful is truly understanding the market you are selling to- identifying customers’ problems as well as their needs and requirements and then offering something that delights them and creates loyal customers. As Colin Myles, author of “How to avoid Business Failure” stated so eloquently:

Attracting loyal customers based on price is like believing in the tooth fairy”

Customer loyalty is not only about getting repeat business, it is also about creating customers who are fans of your offer and will act as advocates on your behalf, telling their family, friends and business associates about what great service they got and how much they love your business and products. They are unlikely to be so prolific if all they associate your business with is getting the cheapest price. Another great quote, this time from W. Edwards Deming.

“Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.”

So when you are thinking about pricing your offer, don’t assume that being the cheapest is your only strategy unless you 100% know that you are the cost leader and even then it is worth considering other options. Instead do some research to find out what is really important to your customers and what headaches they have that you could potentially cure with your offer. That way the discussion is around your solution and not about price and you have a greater chance of creating a sustainable and profitable business.

By George Marketing works with businesses to put in place the foundations of great marketing and customer service.

If you would like to find out more about how I can help your business compete on more than price, please contact me on +44 (0) 7342 697677 or email me at cerigeorge@bygeorgemarketing.co.uk to arrange a discussion.

#pricing #understandingyourcustomersneeds

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Cerigeorge@bygeorgemarketing.co.uk

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